Commentary on New Zealand Politics and Society

Our unsung regressive tax

Among the Labour Party’s objections to increasing GST from 12.5% to 15% was that GST is, in their view, regressive. Their reasoning is that because those on lower incomes spend a greater proportion on their income than those on higher incomes, who are more likely to save, consumption taxes cost the poor a greater proportion of their income than they cost the wealthy.

I shall be interested then to see their views on the Ministry of Health’s notion to increase the tax on tobacco to the point that cigarettes cost $100 per packet.

The excise on tobacco has gone well beyond simple cost recovery and is already aimed at deterring people from smoking. Which is to say that government believes that adult humans are not fit to make a decision weighing the pleasure they derive from smoking against the long-run health risks, and that the government should take that decision out of their hands by making tobacco unfeasibly expensive.

At $100 a packet, the cost would literally be prohibitive for most people. So, is there any reason to expect that prohibition based on price is likely to be more effective than prohibition based on actual prohibition? I strongly doubt it.

On the contrary, I suspect that the result would be merely a gift to the gangs of an additional revenue stream. When cigarettes cost $100 per packet, robbing a dairy or service station of 200 packets of cigarettes would be a serious earner. Marijuana growers will not find it especially difficult to add tobacco plants to their horticultural endeavours, and their distribution networks are already established. Since tobacco will still be legal, it will be a lot easier to smuggle into the country than actual contraband. Indeed depending on what the street price settles at, I suspect that maxing out on the duty free tobacco allowance on one’s return could significantly offset the cost of international travel. Once tobacco goes blackmarket, restricting supply to those under the age of 18 will be more difficult, not less.

Unlike marijuana, since tobacco itself won’t be illegal, it’ll be almost impossible to target the consumers of illegally-grown, or stolen tobacco products. That won’t stop the government going after the new producers, though. On the contrary, while revenue from the excise will have almost completely dried up, police will be asking for new money to enable them to raid illegal tobacco plantations.

Getting back to my earlier point, excise on tobacco is highly regressive. The poor are much more likely to smoke than the wealthy: those living in decile 1 and 2 areas smoke 2.7 times more than those living in decile 9 or 10 areas. They therefore spend a much greater proportion of their wealth on cigarettes. Since most of the cost of tobacco now is tax, the poor are spending more both in absolute and relative terms on tobacco excise than the wealthy. This is money that they are not spending on their children, and is therefore directly contributing to the so-called child poverty that Labour and the Greens usually advocate increasing taxes on the wealthy to alleviate.

What I find most interesting about this discussion is that Des O’Dea, apparently a health economics lecturer at Otago, while opposing a $100-per-packet price on the basis that it would stimulate a black market trade, acknowledged that the tobacco excise was hurting low-income families but said that that was the point.

So, according to the nanny statists, you can’t allow the poor suffer because they’re too lazy to work; you can’t allow the poor suffer because they have more children than they can support; you can’t allow the poor suffer because the economy has tanked and the government needs to cut costs; but, if they have a habit of which you disapprove, by all means don’t just let them suffer – actively implement policies to make them and their children poorer.

Although I don’t think that the Ministry of Health is seriously recommending a $100-per-packet price on cigarettes, I would nevertheless be interested in political parties’ views on the paper. Opposing further hikes to the excise seem to me to be the sort of thing that both sides of the house should be able to agree on.

The Left should be opposed to making the poor poorer.

On the Right, National should realise that their Smokefree 2025 goal violates their stated values of individual freedom and choice; personal responsibility; and limited government.

Meanwhile, ACT’s website still proudly proclaims that the party’s principles are that individuals are the rightful owners of their own lives and therefore have inherent rights and responsibilities and that the proper purpose of government is to protect such rights and not to assume such responsibilities.

In practise, however, I suspect that both sides of the house will agree to lift the excise again next year.